Northrop Drops Tanker Bid

8 Mar 2010

UPDATED: DepSecDef Lynn Says U.S. Disappointed By NG Decision And "Strongly Supports Trans-Atlantic Defense Industrial ties"
More than eight years since Boeing first tried to supply new airborne tankers to the Defense Department, the company appears to have finally won the tanker competition Northrop Grumman announced today that it will not bid on the KC-X tanker and it will not file a protest that might delay the program any further

The announcement came from the top. "We reached this conclusion based on the structure of the source selection methodology defined in the RFP, which clearly favors Boeing’s smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity," said CEO Wes Bush. "We continue to believe that Northrop Grumman’s tanker represents the best value for the military and taxpayer – a belief supported by the selection of the A330 tanker design over the Boeing design in the last five consecutive tanker competitions around the globe. Regrettably, this means that the U.S. Air Force will be operating a less capable tanker than many of our Allies in this vital mission area."

Bush also said the company, mindful of the furor over the last bid protest, will not file one. “While we feel we have substantial grounds to support a GAO or court ruling to overturn this revised source selection process, America’s service men and women have been forced to wait too long for new tankers," he said in his statement.

The top Republican on the House Armed Services Committee, Rep. Buck McKeon, said he hopes, “Northrop reconsiders its decision in the coming weeks. I still believe that competition produces the most effective solutions for our warfighters and ensures the best value for U.S. taxpayers.”

However, a congressional aide said there was nothing for Congress to do now but keep an eye on the program as it moves ahead. The industrial base for large commercial aircraft is robust, with Boeing and Airbus annually producing about 400 planes each. That may have played some role in Northrop's decision not to bid: "At best, this is going to buy 15 airplanes a year. This is a drop in the bucket for these commercial producers," the aide said.

One thing, at least, did go right in the latest iteration of the competition. The requirements process appears to have worked this time, the aide said.

"One of the things the department has been criticized for lately is gold-plating its requirements," the aide said. "I think that the requirements process on this tanker has been scrutinized to the nth degree. I’m pretty confident all the 372 requirements that are in that final RFP are what the Air Force feels it needs to go to war on day one."

Deputy Defense Secretary Bill Lynn said the department was "disappointed by Northrop's decision." He said Pentagon leaders "strongly believe that the current competition is structured fairly and that both companies could compete effectively."

In a final gesture, Bush said that the government should make sure the taxpayers gets a good deal from the new sole source contract. He noted that when the Air Force decided to buy Northrop's tanker, it came up with unit flyaway cost of $184 million per plane for the first 68 tankers. "With the Department’s decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less," Bush said.

Deputy Secretary Lynn, mindful of the probable negative reaction from European countries who are likely to see Northrop's action as proof the U.S. discourages European defense investment, said the Pentagon "strongly supports trans-Atlantic defense industrial ties and believes they benefit the American war-fighter and taxpayer."

EADS North America, Northrop’s partner in the KC-X competition and whose parent builds the A330 that would have been modified for the tanker, issued a statement reaffirming the company’s commitment to the U.S. market. “This decision does not diminish our commitment to the U.S., or to its service men and women. The enduring strength of our commitment is reflected in the success of the Army’s Light Utility Helicopter—of which we are prime contractor and that just celebrated its 100th on-schedule delivery,” said Board Chairman Ralph Crosby. In a nod to the Alabama politicians who fought tooth and nail for them, Crosby tips his hat. “We express our appreciation to the states and communities in which we do business, and particularly to their elected officials who have been unwavering in their determination to provide the best available capability to the American warfighter.”

Now Boeing must deliver on time, within budget and without significant technical problems, as one of its keenest supporters noted. "Boeing still must bring a very competitive bid to the table that meets all the requirements the Pentagon has set forth," Sen. Patty Murray of Washington said in a statement. "It’s important to remember that the American people are the customers, and that we drive a hard bargain."